As the news in late July hit that seven Pioneer accountable care organizations (ACOs) that did not produce savings in the first year of the Pioneer program will switch to another ACO model—the Medicare Shared Savings Program (MSSP)—and two others in the Pioneer program will abandon Medicare accountable care models altogether, healthcare experts have been struggling to draw conclusions about what this really means for the future of accountable care. Is it still a realistic outcome?

The industry continues to hear that ACOs are intended to address the challenges associated with quality, efficiency, care delivery and coordination, and cost effectiveness, while also improving patient outcomes. While monitoring the progress of The Centers for Medicare & Medicaid Services’ (CMS) 32 pioneer ACOs, it was learned that not all of the models produced cost savings—with only 13 of 32 reporting decreased costs.

CMS data revealed that not all Pioneers were able to cut costs for their beneficiaries. Thirteen Pioneer ACOs produced shared savings with CMS, generating a gross savings of $87.6 million in 2012 and saving nearly $33 million to the Medicare Trust Funds. Pioneer ACOs earned over $76 million by providing coordinated, quality care, while two Pioneer ACOs had shared losses, totaling approximately $4 million. Program savings were driven, in part, by reductions that Pioneer ACOs generated in hospital admissions and readmissions, said the federal agency, which did note that all 32 Pioneer participant organizations did well on reported quality measures and earned incentive payments for their quality achievements.

Acknowledging the healthcare landscape’s emphasis on increased quality and decreased cost, this news came as a surprise to the system, despite recent rumors suggesting it was coming. But the outlook on accountable care should still be a positive one, says Michael Nugent, managing director of the healthcare practice at Navigant, a Chicago-based consulting firm. Nugent, who is also a leader of Navigant’s payment transformation team, recently spoke with Healthcare Informatics Assistant Editor Rajiv Leventhal about how ACOs should revamp their strategies to be more effective moving forward, challenges they face in terms of generating savings, and the overall cause for concern in the industry. Below are excerpts from that interview.

Just 13 of 32 Pioneer participant organizations produced savings in year one, with nine collaboratives dropping out of the program. How much of a concern is this to the accountable care initiative?

I don’t see it as a big cause for concern. Many of the organizations that signed up for the Pioneer program, as well as other programs, did it based on a hunch, on a feeling that things would change regardless of healthcare reform. They had to follow what their competitors were doing in order to stay abreast of the situation, and keep their patients and physicians. A lot of the initial involvement included very capable organizations, sure, but there was also an idea of “follow the leader.” That means not everyone would hit their goals.

What caused the disappointing results in year one of the program? And what are the challenges in generating savings while still providing quality care?

These organizations did not have the information spreadsheets, analytics, or horsepower to prioritize the cost savings opportunities. We have learned that a lot of those opportunities were in the post-acute space, and some organizations did not have the firepower to identify that. But even if you were able to identify those opportunities, many provider groups did not have the relationships with the post-acute providers to reduce the avoidable costs associated with ERs. And even if you were lucky enough to have those relationships, some did not organize themselves properly to facilitate communication and hold people accountable to implement changes. There was no budget set, and even if there was, there wasn’t a plan relative to the budget. There were no warning systems for when things weren’t working, so it became a big surprise at the end. Simply put, they just weren’t ready.

What would you say to naysayers who say accountable care is an unrealistic dream?

 Accountability is something that most healthcare professionals are taking seriously now more than ever. Although the results of this pilot didn’t come back with a batting average of 1.000, I can see more clearly now than ever the changes that are occurring, such as reducing the waste in the system and improving the quality of care. We know that our clients see it too. The investment in improvements and care quality are absolutely happening, because many providers now see that payers will not pay for things that are not necessary. I see this as a wake-up call.

Will these results affect future participation of healthcare organizations in Shared Savings Programs?

The initial Pioneer grants came out a few years ago, and the health systems that ended up more successful were the ones that had significant experience managing risk or capitation, which is a different payment model. With the track record that the Pioneers have, and with the track record physician groups are getting with Medicare Advantage, I believe that the industry is smarter than ever as they have learned that they need to organize themselves and operate very differently if they will succeed under new payment models. I see providers as much more educated and unlikely to make rash decisions. It was a hunch a few years ago, now it will be much more informed decisions. Are we truly ready? Are doctors ready? Do we have infrastructure and informatics in place? A much more deliberate decision-making process has come from this.

We have also realized that less is more, meaning several of the analytic and informatics approaches of the last few years have tended to “boil the ocean,” attempting to analyze every single piece of data without a real scientific approach. There has been great work, but a lot of the good work is lost. People can be easily confused by data, metrics, and information.

Simple concepts such as avoidable costs and unexplained variations in care help with this. For variation— why did physician X do this, when everyone else did that? That’s what we mean. And avoidable costs are avoidable readmissions and avoidable emergency room (ER) visits—so less is more. These are the magic concepts and this is where change emanates from. I do believe the analytics and systems are being put in place to adequately address analysis of avoidable costs and unexplained variation, and that’s good to get the conversation started with hospital officials. It’s not rocket science, and it boils down to a focus.

How can ACOs revamp their strategies to be more effective going forward?

First, they need to commit to having a critical mass of patients and employees for whom the ACO will be paid differently and delivered cared differently. So if a medical group or health system only has 5 percent of its population under an ACO payment model or delivery model, it won’t make a huge difference. But if they have 40 percent under that model, it will make a big difference. If we’re going to get serious about a new way of payment and delivery, providers will have to commit to taking care of more lives through this model.

Secondly, and this doesn’t get talked about a lot, providers and payers, along with patients and employers, need to benchmark where the risks are, where the value comes from, and who gets paid what. That’s a lot of stuff to try and figure out. But we need more transparency around who pays for what, who bears the risk, and who delivers the value. And lot of healthcare companies are working on that right now. A key success factor to navigating healthcare reform is figuring out where the money is going and where the risk is at, and balancing that much more effectively.

And lastly, physician behavior change and patient behavior need to change. That means the sickest patients, and it’s the doctors who care for them. The behavior change aspect is something we’re a long ways from—we’re in a piloting mode with that.

Overall though, your outlook is still optimistic?

Accountable healthcare is definitely still realistic. Going back to reform, it was a 10-year plan to incorporate the playbook that Medicare has laid out. It’s sort of a blessing, to be able to “crystal ball it.” When you can do that, the likelihood of succeeding under the new rules will increase. There are a lot of smart people here, and that is what keeps me optimistic. It is incredibly difficult work, though—change will happen, but it won’t happen overnight.